Friday, February 29, 2008

Some interesting insights from Peter Wehner on last night’s Kudlow & Company. Mr. Wehner worked in the Reagan and both Bush administrations. He is now senior fellow at the Ethics and Public Policy Center.

"...At this point, my own sense is that it’s an uphill struggle for McCain. I think most of the metrics, the underlying factors, favor the Democrats. Whether you’re talking about fundraising, voter turnout, or enthusiasm. There’s some fracturing still on the right with McCain. There’s a huge amount of enthusiasm both for Clinton and Obama.

Now, having said that, McCain is a formidable candidate. And the fact that Hillary Clinton couldn’t hurt Obama doesn’t mean that he can’t be hurt. I think one of the things that limited her was that she wasn’t able to contrast herself with him. Because both Clinton and Obama are essentially liberals. McCain is not. Conservatives tend to win philosophically contrasting, ideologically contrasting, elections. I think McCain should [use this approach].

… Obama is one of the most impressive candidates that I’ve ever seen…he would be hard to attack. But no candidate is flawless. And I think he does have vulnerabilities. I think his chief vulnerability is he’s an orthodox liberal in a nation that’s not. McCain has to make that argument. He needs to make an economic argument, domestic argument and national security argument. As I said earlier, Hillary Clinton didn’t make that line of attack, because she couldn’t. Now it could be that the country is tending liberal, or is liberal, [but] I don’t think that it is. That’s the chief area [where I think Obama is vulnerable.] "

The Larry Kudlow Radio Show can be heard live from 10:00am until 1:00pm (EST) on New York’s 770 AM radio dial. If you’re located outside the greater New York area, you can tune in live to the show via the internet at wabcradio.com.

Thursday, February 28, 2008

MONEY POLITIC$...Economist Art Laffer will debate "Supercapitalism" author & former Clinton labor secretary Robert Reich. Topics will include Obama's trade protectionism, a weak U.S. dollar, and President Bush's news conference earlier today where he asserted no recession ahead and rejected calls for an additional stimulus package.

THE MARKETS & ECONOMY...Our all-star panel will offer its perspective on all the latest news, trends, and developments affecting the stock market and economy.

WASHINGTON TO WALL STREET DEBATE...Squaring off this evening in our stock market politics segment will be Democratic political strategist Bob Shrum and Peter Wehner, senior fellow at the Ethics and Public Policy Center & former deputy assistant to President Bush.

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

Some interesting takes on the markets, economy, and where to put your money on last night's Kudlow & Company. Joe Battipaglia, market strategist at Stifel Nicolaus, thinks energy stocks are running on fumes. Over at Forbes, Mike Ozanian is betting on $1000 gold. He thinks food stocks offer investors serious value.

Kudlow: What do you do here? You’re a bear. What’s your strategy?

Ozanian: If I’m the Fed, my strategy is I keep rates constant, like one of your previous guests said. Believe it or not, I’d even possibly increase rates. I’d buy gold. I think gold is going to go up $50 dollars between now and summer.

Kudlow: So you think we’re gonna hit $1000 gold?

Ozanian: Yes I do.

Kudlow: You buy the gold stocks along the way?

Ozanian: I like Newmont mining (NEM). And I’d buy some beaten down food companies that are getting killed from this inflation. We saw [Warren] Buffett buy Kraft (KFT), a big stake of that last week. Another one I like is Del Monte (DLM). It’s been beaten down, and hasn’t done well, but has some great brands.

Kudlow: Joe Battipaglia where are you now? You were heading some money to equities. You still there?

Battipaglia: Yeah, still there and creeping back in. I think the problems are deeper and last a bit longer, which means it’s not a quick bounce back. So I am going to be more defensive in what I buy. And I do think that the commodities cycle is going to come to an end pretty soon. Because supply and demand has been overturned by all kinds of speculative and momentum trading on these commodities, having no bearing on what supply and demand looks like. Energy has been up a number of weeks in terms of availability, yet the price keeps moving higher. I don’t think that’s sustainable quite frankly, Larry. So I want to be more defensive.

Wednesday, February 27, 2008

When Rich Lowry called me a while ago to report the passing of Bill Buckley, I had to work hard to catch my breath and swallow this news. He was a great man. I am privileged and honored to have shared a part of his wonderful life over the past fifteen years.

I am very sad right now, and so is my wife Judy. She became a great friend of Bill’s and Pat’s, often sitting down with Bill at the piano at dinners in Stamford, or at our place in Redding. They talked a lot about art and classical music. When I phoned Judy this morning with the news she too was brokenhearted.

In the early to mid-1990s when I was on staff at NR — during the worst period in my personal life — Bill and Pat were like surrogate parents. Later on things got better for me and I grew even closer to them. It was wonderful.

At Pat’s memorial service in New York I cried with Bill as we embraced each other. So I am crying again right now at Bill’s passing.

He encouraged me to become a Catholic. He encouraged me to stay sober. He encouraged me to keep writing columns. He encouraged me to stick with my new career in broadcasting. Sometimes he would call, out of the blue, and tell me I was making good progress and that he was proud.

Can you imagine? I’m the one who was proud — proud to be his friend and that he would take a moment of his time to call.

There are so many things I could say about our conversations and discussions and debates — about politics and the economy and so forth. But all of that will come later for me.

Right now my biggest thought — apart from the sadness — is how blessed I am to have been a small part of his remarkable life. His influence on me was enormous.

My deep condolences to Christopher and Priscilla and the rest of the family. I prayed earlier that the Lord Jesus Christ would take good care of Bill and Pat, who are now back together.

MORTGAGES...US Treasury Undersecretary for Domestic Finance Robert Steel will be aboard with his insight and perspective.

BERNANKE, THE FED & THE ECONOMY...On to discuss and debate all the latest developments are former Fed Governor Wayne Angell and Joe LaVorgna, chief US economist at Deutsche Bank.

***TRIBUTE TO WILLIAM F. BUCKLEY JR.***

On board:

*Sen. Joe Lieberman (I-CT)*Bill McGurn, VP at News Corp., former chief speechwriter for President George W. Bush & Washington bureau chief of National Review*Ramesh Ponnuru, senior editor for National Review, author of The Party of Death: The Democrats, the Media, the Courts, and the Disregard for Human Life

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

One of the great, unchallenged, political assertions out there right now is that NAFTA costs American jobs. Hill-Bama busied themselves with this protectionist canard during their debate last night. It happens to be nonsense.

We’re witnessing an unprecedented attack on free trade. It’s been growing for some time, and may wind up being the biggest protectionist assault since the days of Herbert Hoover. Believe me, if this canard ever flies, the stock market is going to head south in a hurry.

Take a look at the facts in the following table. I raise this point because a number of policymakers -- Senator Barack Obama in particular -- are out on the campaign trail saying NAFTA cost America 1 million jobs. One million jobs, Senator? There’s just no evidence to support that statement.

Since NAFTA’s passage, we’ve created 27.5 million new jobs. Average hourly earnings – that’s non-supervisory earnings – are up 62 percent. Meanwhile, the index of industrial production for manufacturing is up 72 percent. Those are huge numbers.

Here’s the critical part:

Since NAFTA, the United States has lost 3 million manufacturing jobs (even while production is up 72 percent). But get this. Here’s the really interesting part: During the fifteen years before NAFTA was passed, we lost 2.6 million manufacturing jobs.

Tariffs and trade barriers are bad news. They are anti-growth. They are tax hikes on trade flows subsidized by families and small businesses. Why shouldn’t people be able to freely choose the best goods at the best prices? Why should policymakers be allowed to interfere with this basic economic freedom? The end result is always a reduction in choices and prosperity.

Scapegoating free trade may make catchy headlines for pandering populist policymakers. It may even make hay for Obama in the Ohio primary next week. But let’s be clear: NAFTA is not responsible for the loss of manufacturing jobs. Not by a long shot. Our dynamic, fast-paced high tech/Internet economy is responsible for gradually phasing certain jobs out.

Home prices are falling, but consumer and producer prices are rising. That’s a conundrum for the Fed.

Do investors really want the central bank to keep easing interest rates in the teeth of a 4.3 percent 12-month change in the consumer price index?

Or in the teeth of a 7.7 percent rise in the producer price index?

While I’ve been a bit dovish on inflation, data over the last 3 or 4 months are changing my mind. Inflation first peaked in July 2005, and then gradually declined through the end of 2006. But since the summer of 2007 — and especially in recent months — there has been an alarming rise of inflation.

Economist Brian Wesbury says the Fed is in denial about rising prices. I think he’s right.

Here’s another problem. The Fed is going to be easing interest rates in the teeth of $950 gold and $101 oil! This can’t make any sense to the average Main Street Joe out there.

At the end of the day, the job of the Fed is to stabilize the level of prices, or at least to keep the increase in the price level to less than 2 percent. But the yearly changes are way, way above 2 percent.

And using the so-called core inflation rate (which excludes food and energy) simply makes no sense over longer periods of time. In other words, core prices from month to month, and quarter to quarter, may be useful guides for the Fed, but they are no longer useful over periods of 12 months or longer. The rise of inflation, measured as a 12-month change, is truly significant over the past 4 months. It’s a problem.

The Fed should stop easing right now, and it should maintain that posture until commodity prices start falling.

Incidentally, one of the reasons why voters are so negative on the economy is the increase in the price of energy, gasoline, oil, home heating fuels, and food. Surely the Fed — which is in charge of inflation (since it is a monetary problem) — should resist adding fuel to this flame.

But here’s another problem. Since Hill-Bama didn’t appoint Ben Bernanke, and Bush did, they can criticize the inflation problem. Meanwhile, Republicans may wind up getting blamed for it. Sen. McCain needs to develop a plan to address it.

In short, this inflation story is becoming a real big problem, in political and economic terms.

An old friend emailed last night, asking for some info on the Bush tax cuts. He also wanted some insight on the tax and spend proposals being bandied about by big government Obama, Hillary, and others out there.

Here’s a portion of my response:

Bush cut taxes by 21% for marrieds with 50k; 18% for marrieds with 75k; 17% for marrieds with 125K. Do people know this?

Do people really believe that raising taxes at the top end will reduce taxes in the middle? Or grow the economy? Democrats proposing huge spending plans. Who will pay? Top earners? Or middle earners?

Who will pay to fix social security and medicare entitlements? Or expanded health entitlements? Do people want a $65b government infrastructure bank? A $150b government bureaucracy for "green tech" projects?

Monday, February 25, 2008

Is it just me, or has anyone else noticed Hillary’s erratic, roller-coaster, mood swings these past few weeks?

She’s all over the map. Irritable and angry. Manic. Pessimistic and sad. One minute she’s shedding tears, the next minute she’s shouting and attacking, then she’s sarcastically ripping on Obama, and on and on it goes.

So, is Hillary depressed?

Now I’m no psychiatrist, far from it, but I think a simple answer is that Senator Clinton could be depressed. She seems deflated. Down in the dumps.

Look, depression is a serious problem. It’s also a multibillion-dollar business. Three of the more popular drugs in the market today to treat it are Pfizer’s Zoloft, Eli Lilly’s Prozac, and GlaxoSmithKline’s Paxil. Maybe Hillary’s taking meds, but they’re just not working for her? Could that be why she’s always attacking Big Pharma?

YOUR MONEY, YOUR VOTE...Frank Newport, editor-in-chief at the Gallup Poll will be aboard with a report on all the latest poll data. MONEY POLITICS...The Dynamic Duo will square off in our Washington to Wall Street debate. On board are "Supercapitalism" author & former labor secretary Robert Reich and The Wall Street Journal's Steve Moore.

A DISCUSSION ON TRADE, THE ECONOMY & CUBA...US Commerce Secretary Carlos Gutierrez will join us for a one-on-one interview.

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

It's the second installment in a 3-part series courtesy of the Center for Freedom and Prosperity. It's hosted by Cato tax expert Dan Mitchell and focuses on real-world evidence of the Laffer Curve.

A month ago, I linked to the first video which carefully explained how tax rates, taxable income, and tax revenue are all intertwined. Part III will explore how to improve the revenue-estimating process.

Again, well done. Hats off.

**On a related note, Cato tax experts Chris Edwards and the aforementioned Dan Mitchell are putting the finishing touches on a book about tax competition. Ought to be out later this year. Should be an enlightening read.

YOUR MONEY, YOUR VOTE...CNBC chief Washington correspondent John Harwood will provide us with a report on all the latest political news and developments including the New York Times story on John McCain.

Also...Larry Sabato, director of the Center for Politics at the University of Virginia will offer his perspective on the NYT/McCain flap, as well as his take on Hillary v. Obama.

I’ll be hitting the AM dial again tomorrow for my weekly Saturday morning radio show.

The stock market. Economy. Politics. We cover it all.

Some of the topics we'll discuss on tomorrow's show include: the controversial New York Times story on John McCain, Obama's surge, oil and commodity prices, the Fed, the stock market & economy, and much more.

The Larry Kudlow Radio Show can be heard live from 10:00am until 1:00pm (EST) on New York’s 770 AM radio dial. If you’re located outside the greater New York area, you can tune in live to the show via the internet at wabcradio.com.

Thursday, February 21, 2008

Economist Martin Feldstein made the case in yesterday’s Wall Street Journal ("Our Economic Dilemma") that credit is contracting throughout the banking system. As a result, Mr. Feldstein contends that a recession is all but inevitable. I beg to differ.

My friend, economics professor Mark Perry from the University of Michigan business school (and author of the great Carpe Diem blog site) provides us with the following charts to challenge Mr. Feldstein’s thesis.

First up, commercial & industrial loans:

This is through the end of 2007. As you’ll see, business loans are stillrising.

Next up, consumer loans:

Again, still rising.

Finally: real estate loans:

Check that out. Even real estate loans are still rising. They’re not rising much, but they are still rising.

Even though big pockets of problems still exist out there, I do not share Mr. Feldstein’s credit contraction scenario. People are still getting loans.

Moving on to inflation. The big problem yesterday was a lousy CPI report.

The overall inflation rate went up to 4.3 percent, last twelve months. The core inflation rate is 2.5 percent. As you can see by this chart, core inflation is in line with the last ten years. Although, it’s still a little high for the Fed’s tastes.

I did some statistical testing of various inflation models. Now, to be sure, I don’t think anyone has really cornered the market on inflation forecasting. (Or for that matter, any forecasting.) But let me just share with you some statistical results.

If you use just the price of gold -- which has had a heck of a run, shooting up over $900 bucks -- with an 8-quarter lead, gold is predicting 5.7 percent inflation in 2008. That’s the highest. If you use the old, Milton Friedman, narrow money supply M1, with an 8-quarter lead, the inflation rate comes to a modest 2.2 percent. This is headline inflation. And therefore way down from today’s 4.3 percent report. On the other hand, if you use the 5-year Spot TIPS inflation model, the so-called inflation spread that the Fed looks at, the inflation rate by the middle of the year would be 2.2 percent.

Now, if you take all them together, you get 3.4 percent as an average. But if you exclude gold, it’s actually only about 2.2 percent. That may be a little high, but still nothing to worry about.

Wednesday, February 20, 2008

The plug has been pulled on Hillary Clinton’s campaign.Allow me a dose of hardened market realism concerning Barack Obama’s landslide victory in Wisconsin. The race is over. Hillary Clinton is over. Her electability is over. Bill Clinton’s political invincibility is over. The Clinton Restoration is over.

It’s over.

Obama got to the far left faster than Hillary did. He out-organized her, out-fundraised her, out-speechified her, out-hustled her, out-dressed her, and out-presidentialed her. He outbid Hillary for votes, one promised government check at a time. His 17-point margin of victory in Wisconsin was incredible. It says he can’t be stopped.

Outside of the whacko ultra-left Madison college population, which is even worse than the Ohio State population, Wisconsin is a lot like Ohio. And Ohio campuses will go for Obama. Think faculty voters, grimly determined for a left-wing takeover of America “from the bottom up,” to use the Saul Alinsky community-organizer phrase. As goes Wisconsin, so goes Ohio.

Not even Hillary’s last-minute bashing of business, free trade, and free-market capitalism — which was a complete repudiation of her husband’s presidency — could save her. Obama got there first, with a style and elegance that Hillary simply couldn’t match.

And it came out of nowhere. On the eve of the Wisconsin primary, Hillary did a hard-left imitation of John Edwards’s populist and demagogic soak-the-rich rhetoric. She trashed some of the greatest businesses in America — oil, credit-card, insurance, and pharmaceutical firms. Wall Street and lending firms. It all must have come as quite a shock to the alumni of the Bill Clinton White House who are working for her campaign.

Robert Rubin may have been too busy tending to Citigroup’s sub-prime collapse to keep Hillary on the reservation. But where were Wall Street’s Roger Altman and Washington’s Gene Sperling when Hillary discarded the pinstripes for the polyester lefty-union pantsuit?

Bashing business comes naturally to Obama. But for Hillary it was a complete failure. Exit polls from Wisconsin say the trade protectionists went with Obama. Union members? Obama. People who think the economy’s in trouble? Obama. Folks who don’t think it’s in trouble? Obama. People making less than $50,000 a year? Obama. More than $50,000 a year? Obama.

And it only gets worse.

Voters went with Obama on healthcare by 8 points, on the economy by 16 points, and on Iraq by 20 points. Churchgoers and non-churchgoers went with Obama. Most qualified to be commander-in-chief? Obama. College degree or no college degree? Obama. Democrats, Republicans, and independents went with Obama. So did blacks and whites.

White women did in fact lean toward Hillary, by a small 52 to 47 percent margin. But Hillary only got 31 percent of the male vote while tying the female vote. White males? They went with Obama by a full 29 points.

Obama won both married men and women, and he tied on unmarried women — a heretofore Hillary stronghold. Most likely to unite the country? Obama, by almost 30 points. Most interested in improving relations with the rest of the world? Obama, 56 to 40.

You think these trends are going to change in Texas, Ohio, and Pennsylvania? I don’t — no matter what last-gasp neutron-negativism tactics the Clinton team employs.

Bash Obama for plagiarizing Deval Patrick? That negativism backfired. Go after Michelle Obama’s incredible anti-American speech? Women are coming ’round to Obama, so try again. Go super-negative over the next two weeks? That’ll mean Obama beats Hillary by 35 points instead of 20. Lift the sanctions on the Michigan and Florida delegates? That’s an Obama trump card. Bribe or rent the super-delegates? Make my day, Obama is thinking.

If Hillary wants to preserve her career as a professional politician her best bet is to pull back in Texas and Ohio as a prelude to withdrawal. Bill will say no, ’cause his career is even deader than hers. But Hillary has more class than her husband. She also has some vague sense of reality — of the difference between right and wrong.

The Intrade pay-to-play prediction market showed Obama with a 10 point gain after Wisconsin, giving him an insurmountable 81 to 19 lead. It’s as if Hillary has suddenly become a steeply inverted yield curve, with a rapidly declining credit rating and a liquidity pool that’s quickly drying up. She won’t be able to raise two wooden nickels going forward. Not even Bill can raise enough money in Dubai to keep her out of bankruptcy.

The market has officially pulled the plug on Hillary, terminating her campaign. What’s left for her now is to muster some grace, humility, and character and begin the process of pulling out. To do otherwise will destroy the Democratic party, and what’s left of the Clintons’ badly tarred and tattered reputation.

$100 OIL...Cambridge Energy Research Chairman Dan Yergin will join the market panel with his perspective and insight into oil's surge and what it all means.

POLITICAL RUNDOWN...We'll get the latest political news from pollster John Zogby and CNBC's Michelle Caruso-Cabrera.

MARY MATALIN VS. LAWRENCE O'DONNELL...The two political heavyweights will debate the meaning of Obama's big victory in Wisconsin last night, whether Hillary's campaign is finished, and how McCain's campaign is stacking up.

OBAMA-NOMICS VS MCCAIN-NOMICS...We'll take a Washington to Wall Street look at the economic proposals of each candidate. Squaring off this evening are Dan Clifton, political strategist at Strategas and Morris Reid, managing director Westin Rinehart.

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

Senator John McCain essentially took the no-new-taxes pledge on the Stephanopoulos show Sunday morning. He also emphasized his corporate-tax-cut plan, which would drop the rate from 35 to 25 percent, and reiterated his pledge to keep the Bush tax rates in place.

Incidentally, an interesting story in USA Todayby Dan Nowicki of the Arizona Republic says that Sen. McCain has often talked about getting top U.S. business leaders into his administration. Several times on the campaign trail, McCain has mentioned Microsoft’s Steve Ballmer, Cisco’s John Chambers, and FedEx CEO Fred Smith as possible cabinet members.

Anti-business class warfare doesn’t work in the United States. John Kerry tried this tack in 2004. He lost. Ditto for Al Gore in 2000. Ditto for Michael Dukakis in ’88, Walter Mondale in ’84, and Jimmy Carter in ’80. It looks like Hill-Bama is making the same mistake all over again in 2008.

Bill Clinton was a moderate on all this. But Hill-Bama can’t move to the left fast enough. Rest assured that Sen. McCain will hold them accountable for their primary-season populist rhetoric during the general election.

There are a lot of reasons why the anti-business message doesn’t work. One important reason is that 138 million Americans work for these corporations. Their livelihoods depend on businesses. 138 million is a big number. Think of it.

Friday, February 15, 2008

A number of economists on and off Wall Street are ringing the recession bell, as they have so many times in recent years. But the Goldilocks economy has proven to be more durable and resilient than her critics appreciate.

Goldilocks dodged two potentially recessionary bullets this week. While modest gains in retail sales and industrial production suggest temporarily slower growth for the U.S. economy, these indicators are not signaling recession. In particular, Friday’s 0.1 percent production increase -- which comes to 2.4 percent at an annual rate over the past 3 months and 2.3 percent over the past 12 months -- removes the recession scenario. It’s slow growth, but it’s growth nonetheless. To get a true recession reading, the production index would have to fall for 4 to 6 months in a row. That’s not happening. Despite some monthly declines over the past half year, the production reading for January was 114.2 -- exactly where it was in July and September of last year. Looking inside the January index, there was a 0.3 percent increase for consumer-goods production and a 0.4 percent rise for business equipment. Both are solid numbers.

Meanwhile, the just-released January retail sales report defied the recessionistas with a better-than-expected 0.3 percent gain. Retail sales are climbing at a 2.7 percent annual rate over the past 3 months and a 3.9 percent rate over the past year.

Trade exports also continue strong, with the new December number showing a huge $144 billion gain. Out on the campaign trail, Hill-Bama mutters protectionism at every stop. But export trade has grown by nearly 50 percent -- or 9 percent yearly after inflation -- for the past four years. The real export sector now accounts for nearly one-third of U.S. gross domestic product, yet more proof that the global economic boom is alive and well.

There seems to be too much angst over various credit problems in the banking system -- such as defaulting sub-prime loans, leveraged corporate-buyout paper, unhealthy bond insurers, and, more recently, a clog up in short-term municipal bonds. All these credit issues have yet to be fully worked out. But there is so far no evidence they have dragged the economy into a contraction.

It’s also noteworthy that the Bush tax cuts remain in place for investment. And while the newly signed rebate package is a wet noodle, it does call for temporary cash expensing to promote business investment. This could ultimately do some good.

Critically, the Federal Reserve’s easing moves -- going back to last September and including January’s “shock and awe” 125 basis point rate cut -- are beginning to impact the economy and should deliver more pronounced effects later this winter and in the spring. An easier Fed and low tax rates may not only keep us out of recession, they could move the economy up from 1 percent growth this winter to 3 percent growth in the second half of the year -- perhaps as early as the second quarter. I’m keeping my fingers crossed. But free-market capitalism on the supply-side is weathering the credit storm better than most folks think.

The challenge now is to ensure that free-market capitalism on the supply-side continues.

Hill-Bama is campaigning on a populist platform of taxing businesses and rich people. This fiscal nymphomania will create new government bureaucracies on infrastructure and energy totaling a couple hundred billion dollars. It’s beyond the pale.

For the fiscally tightfisted Sen. John McCain, and his crusade against unnecessary spending and earmarks, there is a great opportunity here. McCain can build on his pro-growth corporate-tax-cut proposal with a broad-based tax-reform plan. This approach would lower tax rates across-the-board and broaden the base by removing unnecessary exceptions and loopholes. In effect, while Hill-Bama copies Western Europe’s failed economic playbook, McCain can replicate the tax-reform success over in Eastern Europe.

Whether it’s national defense, homeland security, or economic growth, the key to a McCain victory over Hill-Bama in November is to compare and contrast two visions of America’s future. The contrast couldn’t be greater. Hill-Bama trashes corporations. But Sen. McCain understands that by lowering tax rates on corporations, vital capital will be unlocked, leading to business expansion and job creation.

Speaking in Warren, Ohio, this week, Sen. Clinton singled out oil, credit-card, insurance, pharmaceutical, investment, and student-loan firms in a massive attack on business. She’s attacking corporations that employ 23 million people and, by the way, pay higher than average wages. In other words, Clinton is attacking 23 million jobs. This is the forgotten middle-class. And they know that if politicians curb or confiscate the profits of their companies, it is they, the workers, who will be harmed.

This is what Hill-Bama fails to understand. This is why Hill-Bama policy would be so damaging to the economy. Corporations are profitable, sure. But wage earners get 70 percent of the profits; investors share the remaining 30 percent.

And these companies pay a colossal fortune in taxes. Exxon Mobil is a perfect example. Over the last three years, Exxon Mobil has paid an average of $27 billion annually in taxes. $27 billion! As my friend, economist Mark Perry, points out, while corporate profits receive a lot of media attention, the corporate taxes paid on these corporate profits are largely overlooked. Dr. Perry also points out that Exxon Mobil pays as much in taxes annually as the entire bottom 50 percent of individual taxpayers -- a full 65,000,000 people.

The choice is clear: Jimmy Carter-style big-government spending, taxing, and regulating all over again. Or supply-side free-market capitalism that can endure the inevitable negative shocks, shorten the cyclical downturns, and fuel the engines of economic growth.

Top-ranked fund manager Ken Heebner joined us on last night's Kudlow & Company. His 5-star Morningstar rated CGM Focus Fund was up a spectacular 79.9 percent last year. His 3-year and 5-year track record are similarly remarkable -- 31.7 percent and 38.4 percent respectively. Here are some of his thoughts from last night's show.

Mr. Heebner: "I think the U.S. economy is slowing down. It may or may not enter a slight recession. The global economy is growing strongly. And there’s a lot of opportunity in industrial raw materials which are being heavily demanded by these growing, emerging economies and where supply bottlenecks have emerged. Price moves to the upside are significant and will continue. And those commodities are coal, iron ore, steel, copper and aluminum. And the companies that produce these products, I think, are inexpensive and the earnings are going to surprise as the price of the underlying commodities continues to move to the upside.

There’s another part of the story. American companies – nobody says this – are formidable competitors. We are still the global leader in business. There are many businesses where we are the absolute leader. Our technology lead has not been diminished at all. And in commodities like coal, and the agricultural [sector], we are a growing and major leading exporter. The [agricultural/commodities sector] is having the greatest boom in history…The consumer is a little bit soft, housing is terrible, but other sectors are moving to the upside aggressively. So to paint an overall negative picture I think is an unbalanced view."

The Larry Kudlow Radio Show can be heard live from 10:00am until 1:00pm (EST) on New York’s 770 AM radio dial. If you’re located outside the greater New York area, you can tune in live to the show via the internet at wabcradio.com.

Thursday, February 14, 2008

It’s old-fashioned-liberal tax, spend, and regulate.Sen. Barack Obama is very gloomy about America, and he’s aligning himself with the liberal wing of the Democratic party in hopes of coming to the nation’s rescue. His proposal? Big-government planning, spending, and taxing — exactly what the nation and the stock market do not want to hear.

Obama unveiled much of his economic strategy in Wisconsin this week: He wants to spend $150 billion on a green-energy plan. He wants to establish an infrastructure investment bank to the tune of $60 billion. He wants to expand health insurance by roughly $65 billion. He wants to “reopen” trade deals, which is another way of saying he wants to raise the barriers to free trade. He intends to regulate the profits for drug companies, health insurers, and energy firms. He wants to establish a mortgage-interest tax credit. He wants to double the number of workers receiving the earned-income tax credit and triple this benefit for minimum-wage workers.

The Obama spend-o-meter is now up around $800 billion. And tax hikes on the rich won’t pay for it. It’s the middle class that will ultimately shoulder this fiscal burden in terms of higher taxes and lower growth.

This isn’t free enterprise. It’s old-fashioned-liberal tax, spend, and regulate. It’s plain ol’ big government. The only people who will benefit are the central planners in Washington.

Obama would like voters to believe that he’s the second coming of JFK. But with his unbelievable spending and new-government-agency proposals he’s looking more and more like Jimmy Carter. His is a “Grow the Government Bureaucracy Plan,” and it’s totally at odds with investment and business.

Obama says he wants U.S. corporations to stop “shipping jobs overseas” and bring their cash back home. But if he really wanted U.S. companies to keep more of their profits in the states he’d be calling for a reduction in the corporate tax rate. Why isn’t he demanding an end to the double-taxation of corporate earnings? It’s simple: He wants higher taxes, too.

The Wall Street Journal’s Steve Moore has done the math on Obama’s tax plan. He says it will add up to a 39.6 percent personal income tax, a 52.2 percent combined income and payroll tax, a 28 percent capital-gains tax, a 39.6 percent dividends tax, and a 55 percent estate tax.

Not only is Obama the big-spending candidate, he’s also the very-high-tax candidate. And what he wants to tax is capital.

Doesn’t Obama understand the vital role of capital formation in creating businesses and jobs? Doesn’t he understand that without capital, businesses can’t expand their operations and hire more workers?

Dan Henninger, writing in Thursday’s Wall Street Journal, notes that Obama’s is a profoundly pessimistic message. “Strip away the new coat of paint from the Obama message and what you find is not only familiar,” writes Henninger. “It’s a downer.”

Obama wants you to believe that America is in trouble, and that it can only be cured with a big lurch to the left. Take from the rich and give to the non-rich. Redistribute income and wealth. It’s an age-old recipe for economic disaster. It completely ignores incentives for entrepreneurs, small family-owned businesses, and investors. You can’t have capitalism without capital. But Obama would penalize capital, be it capital from corporations or investors. This will only harm, and not advance, opportunities for middle-class workers.

Obama believes he can use government, and not free markets, to drive the economy. But on taxes, trade, and regulation, Obama’s program is anti-growth. A President Obama would steer us in the social-market direction of Western Europe, which has produced only stagnant economies down through the years. It would be quite an irony. While newly emerging nations in Eastern Europe and Asia are lowering the tax penalties on capital — and reaping the economic rewards — Obama would raise them. Low-rate flat-tax plans are proliferating around the world. Yet Obama completely ignores this. American competitiveness would suffer enormously under Obama, as would job opportunities, productivity, and real wages.

Imitate the failures of Germany, Norway, and Sweden? That’s no way to run economic policy.

I have so far been soft on Obama this election season. In many respects he is a breath of fresh air. He’s an attractive candidate with an appealing approach to politics. Obama is likeable, and sometimes he gets it — such as when he opposed Hillary Clinton’s five-year rate-freeze on mortgages.

But his message is pessimism, not hope. And behind the charm and charisma is a big-government bureaucrat who would take us down the wrong economic road.

THE FED & THE ECONOMY...We'll have an economic discussion with Columbia University economist Charles Calomiris, and Mark Gertler, NYU economics professor and research co-author with Fed chair Ben Bernanke as well as policy consultant at the New York Fed.

THE RAILROADS...Wick Moorman, CEO of Norfolk Southern will join us with his insight.

MONEY POLITICS UPDATE...The Politico's Jonathan Martin will give us a report on all the latest news in the race to the White House.

STOCK MARKET POLITICS...Our panel will debate all the latest Washington to Wall Street issues with an emphasis on the presidential candidates' proposals.

Here's an excerpt from last night's Kudlow & Company with Joe Battipaglia. Joe is a frequent market guest on our show, and a market strategist for the private client group at Stifel Nicolaus. He's been bearish for some time now, but is beginning to see brighter days ahead in the stock market and economy.

Kudlow: Joe Battipaglia, what is happening here? Because sort of out of the blue…we have this bottom on January 22nd. This is important. Is this a strategic issue? Our friend [hedge fund manager] Barton Biggs talked about this the other day. He says this was an “important bottom.” [Warren] Buffett himself seems more optimistic. You’ve been very hard-minded. You’ve been very tough on this whole story. But you’re adding a little bit to your equity position. Will stocks overcome these credit problems? Because I think in some sense that is one of the biggest issues, maybe the biggest issue in Stockland.

Battipaglia: Yeah, well my headline for this is that risk has returned to the equation. Whether you look at high-yield spreads, or real estate investment trust spreads against Treasuries, or look at stocks performance against bonds. What you see is valuations now becoming much more attractive for the risk-taker. Which to me means, that at some point in time, as the economy mends itself, however many quarters it takes, the stock market will sniff that out, and start to advance ahead of that. And I put the risk/reward range right now at minus 5 for the stock market in terms of percentage points down, to 15 percent to the upside over the next 12 months. And suddenly it becomes a more interesting place to be. So with rates coming down, and the economy going through its corrective, healing phases – consumers have already, for over a year now, been contracting in their use of debt – you set yourself up for a better tomorrow. And that’s how you start positioning your equity portfolio, despite bad headline news.

Wednesday, February 13, 2008

Here are some interesting thoughts from last night's Kudlow & Company about this ridiculous idea to freeze mortgage interest rates for five years.Kudlow: Arthur Laffer, [Treasury Secretary] Henry Paulson came out with a lot of possible things to help the subprime mortgage market and mortgage markets in general. One of the things that really troubled me Art, is he’s talking about a 5-year freeze, a 5-year freeze on mortgage interest rates that might be in foreclosure. Now I think that is wage and price controls. I think that’s interest rate controls. I think that’s a disaster for the international market. And, it sounds like Hillary Clinton. Now where does a tough guy like Paulson -- usually a very sound thinker, from Goldman Sachs -- where does he come out freezing interest rates for five years?

Art Laffer: I have no idea where he comes out, how he gets something like that. But it’s really a silly idea, Larry. You know you shouldn’t freeze these things. These contracts should be honored as they are. And frankly, people who go and get those mortgage rates and buy those homes, it’s their problem. I mean it honestly is their problem. And if Paulson steps in and tries to bail them out, frankly, it will just encourage people to do it more in the future. It will make the supply of funds for mortgages dry up. Who wants to be the lender?

Kudlow: You know, to his great credit, Senator Obama blasted Senator Clinton in the debate when she talked about a 5-year freeze on mortgage rates. Obama says, hey look, mortgage prices, mortgage rates are gonna go sky high. Nobody’s gonna get any credit. Okay? I think he had that completely right. He probably doesn’t get enough credit for it. But, now, Mr. Paulson is following Hillary! What is this about?

MONEY POLITIC$...The Dynamic Duo returns this evening for a Washington to Wall Street debate on all the latest hot-button money politics issues. The Wall Street Journal's Steve Moore will square off with former labor secretary and "Supercapitalism" author Robert Reich.

THE MARKETS...Our market panel will weigh in with its perspective on all the latest news and developments affecting investors.

Tuesday, February 12, 2008

With as much objectivity as I can muster (yes, I still look at the facts), we are teetering very close to a recession. A case could be made that we are in one right now.

Here are the four top National Bureau of Economic Research indicators.

First one, employment:

It looks like the peak was in December. It’s a very small peak. But the peak was in December. January, as you know, delivered a small jobs loss.

Next up, manufacturing and trade sales:

This is probably the toughest one. It looks like it peaked several months ago, in October. We’ve got a pretty good decline cooking here. That is not a healthy signal at all.

Up next, personal income:

This one too, I find very troubling. We’re looking at income adjusted for inflation, taking out transfer payments. We’ve got some new information and revised old information here. The peak goes all the way back to September. It shows a gradual decline. Over the last three months, real disposable income is down 0.5 percent at an annual rate. This is a tough one.

And finally, industrial production:

Same story. The peak there could have been in September. Yes, the losses are very small. But it’s still not a good sign.

All this points to the increasing likelihood that Q1 GDP is going to be in negative territory.

It’s not the end of the world, however.

Here’s an interesting picture showing that while a free market economy is not always recession-free, it's nothing to get up in arms about. We do go through periodic corrections from time to time.

Take a good look at those numbers. Now, even if I assume that we are headed into a recession, over the last 60 years, post WWII, real GDP has increased a whopping $10 trillion dollars. That's 634 percent. That comes to 3.4 percent growth a year after inflation. And that covers ten recessions.

Now look at the stock market. The S&P 500 percentage return has been nothing short of incredible. Almost 87,000 percent. That comes to 12 percent a year, or 9 percent after inflation.

Look, we’ve had 10 recessions between 1947 & 2007. The average length is ten months. The last two were eight months. But because of our economic freedom (particularly in the last 25 years since Ronald Reagan helped transform the economy) none of this has impeded our prosperity. None of this has stopped output or employment. None of this has stopped the robust U.S. stock market expansion.

Our Goldilocks free market economy is not recession-free. We do have corrections in business cycles. I don’t deny that. But look at those numbers again. They are spectacular. This could very well be an extraordinary time to buy stocks for the long run.

Monday, February 11, 2008

To the casual reader of the primary and caucus results of this past weekend, Obama is just creaming Hillary. This race won’t be over until the returns are in from Texas and Ohio next month and Pennsylvania in April. After that, the super-delegates will have to make up their minds. But right now, Hillary is just getting whooped. That’s the long and short of it. (Plus, she just fired her campaign manager.)

This is disturbing news on the taxation front. The Wall Street Journal’s Steve Moore says Obama’s tax plan would add up to a 39.6 percent personal income tax, a 52.2 percent combined income and payroll tax, a 28 percent capital-gains tax, a 39.6 percent dividends tax, and a 55 percent estate tax. In other words, Sen. Obama is a very-high-tax candidate. Whether Wall Street has fully discounted this, I have no idea. Probably not yet. But somebody in the investor class ought to be thinking about it, because it’s not good.

Interestingly, at least two of Obama’s top economic advisors — Austan Goolsbee and Jeffrey Liebman — are highly regarded free-market economists. Goolsbee from Chicago, Liebman from Harvard. But somehow their candidate has a very punitive high-tax campaign plan for the economy. I don’t know all the details on Hillary’s tax plan, but I don’t think she is yet in favor of lifting the payroll tax cap, as Obama is. And I think she’d keep cap gains at 20 percent. But none of this is any good.

YOUR MONEY, YOUR VOTE...Larry Sabato, director of the Center for Politics at the University of Virginia will join us with an update from the UVA campus where Sen. Hillary Clinton spoke earlier today to one of his classes.

LAZEAR'S TAKE ON THE ECONOMY...Ed Lazear, chairman of the White House Council of Economic Advisers, will join us with his take on economic conditions.

MONEY POLITICS...Our Washington to Wall Street panel will discuss and debate all the latest news and developments affecting investors and the economy, including what's shaping up in the presidential race.

On board:

*Steve Moore, senior economics writer for The Wall Street Journal and a member of its editorial board *Robert Reich, Professor of Public Policy at the University of California at Berkeley, former secretary of labor, & author of "Supercapitalism."*Austan Goolsbee,University of Chicago economics professor & top economic advisor to Sen. Barack Obama.

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

Friday, February 08, 2008

Some things in life are quite simple. Here’s one of them: Sen. John McCain is going to be our next president.

How do I know?

For starters, McCain will have a unified Republican party -- conservatives and all -- working hard for him. He’s also going to win over the Reagan Democrats, the Bush Democrats, and the Perot independents. These folks demand a strong military, want government off their backs, and are sick and tired of growing federal deficits and out-of-control spending. McCain’s their man.

If you recall, it was the cross-over Democrats and independents who helped elect Ronald Reagan twice and put Papa Bush in office for what was expected to be a Reagan third-term. When Papa Bush waffled, they went to Perot. But they came back to support the Gingrich Congress and later stayed with George W. Bush in 2000 and 2004. In 2006 they walked away again, penalizing a GOP Congress that embraced heavy spending and corrupt earmarks. But now they’ll come back. McCain is tailor-made for this group.

Just think of McCain in a debate versus Hillary or Obama. Remember McCain’s zinger about Hillary’s $1,000,000 earmark for a Woodstock Hall of Fame museum? He said he didn’t know much about Woodstock because he was “tied up at the time.” It was a killer line and we’ll hear it again.

McCain is also good news for business and the stock market. He wants to cut the corporate tax and keep dividend and cap-gains tax rates low. He’s tough as nails on restraining government spending and blowing up earmarks. On top of all this, he’s a very strong free trader who knows America can compete with the rest of the world.

Stock market fears about a new wave of tax hikes should be put aside. It ain’t gonna happen after McCain is sworn in. Neither will protectionism. So far as I can tell, high taxes and diminished free trade are the biggest worries for business and stocks. Investors can cast their fears aside.

This also happens to be a good time for the GOP to nominate someone who served bravely and courageously in the military. McCain is much more than a POW who somehow survived the Hanoi Hilton. He is a true military man. It flows through his veins, posing a whopper of a problem for Hillary or Obama. Guaranteed, there will be no chicken-hawk taunts.

And let’s not forget that military leaders who know all about war, security, and defense are exactly the people who cherish peace the most. When John McCain talks about the global terror war and how to deal with it, and how to protect this country, and how to move toward peace, voters will listen. So will folks around the world. This is all part of McCain’s character.

A short while back, I heard former Bush chief of staff Andy Card give an engaging talk at an Awakening conference in Sea Island Georgia. Card asked: What’s the most important character trait for a successful president? And he answered: The courage to be lonely. In other words, the guts to make tough decisions. Not poll-driven, politically driven, or selfish decisions, but decisions made on the basis of what is right and what is wrong and what is best for America.

McCain is no flip-flopper. Just think about his stance against ethanol subsidies in Iowa and federal hurricane insurance in Florida. (And Florida’s Gov. Crist still supported him!) Think of his duty-honor-loyalty persona, to borrow from my friend Kim Strassel of the Wall Street Journal. Duty-honor-loyalty is part of the American military code of conduct. In this most important sense, McCain is a profoundly conservative man. When he makes a promise, he keeps it.

And don’t forget his resiliency, consistency, and backbone. Here was a man moving around the country, without money and resources. He remained resolute on winning in Iraq, on the surge, and on the need to prevail abroad if we are to remain safe at home. Democrats were talking defeat. Republicans were hardly talking at all. But McCain soldiered on. Armed with courage, strength, and character, he kept his eyes on the prize. This may be the greatest political comeback in presidential history.

One of the troubles with American politics nowadays is that we don’t appreciate our military men and women enough. We don’t value their intelligence, their fitness, or their values. There was a time in American history -- especially in the 19th century -- when we held the military in great esteem. George Washington, of course, was one of our bravest generals, blessed with uncommon character and strength. Well, John McCain is a descendant of George Washington, and is a foot solder in his army. America yearns for exactly that kind of foot soldier. That’s why he’s gonna win.

The Fed chief needs to end the stop-and-go policies he inherited from his predecessor.Charlie Plosser, president of the Philadelphia Federal Reserve Bank, warned this week about the risks of inflation, overly aggressive interest-rate cuts, and further damage being done to the Fed’s credibility. I agree with Plosser.

I say this as a supporter of the “shock and awe” Fed policies that brought the fed funds target rate down from 5.25 percent to its present 3 percent. These aggressive actions were necessary, and they’ve paid off. The target rate is now properly below the 10-year bond yield, while the Treasury curve is upward sloping for the first time in nearly twenty months. The overly tight money period of 2006-07 has finally come to an end. And even though in its aftermath the economy could skip into mild recession, this is a positive, watershed event.

Most economists ignore the fact that the sub-prime credit crisis, along with the extraordinary downturn in housing construction and home prices, is largely the result of the Fed’s massive tightening move that lifted the funds rate above 5 percent in the first place. Fed chair Ben Bernanke inherited this bucket of smelly molasses from his predecessor, Alan Greenspan. In straightening the situation out, Bernanke has opened the door to a rapid economic recovery. It’s a signal achievement for the former Princeton professor.

Bernanke has taken a lot of criticism in the last year, and I think much of it is undeserved. Wall Street claims that he’s an isolated academic, unaware of the real-world difficulties of sagging capital markets, slumping stock prices, and slowing growth. But he moved aggressively once he saw the credit problem develop last summer. And new information obtained under the Freedom of Information Act reveals how he has been meeting with leaders in business, finance, and government all along. He has talked with John Chambers, the CEO of Cisco Systems, Sam Palmisano, the head of IBM, JPMorgan’s chief Jamie Dimon, former Senate banking head Phil Gramm, and international central bankers Jean Claude Trichet and Mervyn King. The street was wrong about Bernanke. He’s been on top of the situation. He took remedial action and the economy will be the beneficiary faster than people think.

But here’s his next challenge. Bernanke needs to end the stop-and-go policies he inherited from his predecessor. Greenspan became a supreme monetary tinkerer in his final years, putting the Fed’s interest rate and monetary levers in constant overdrive. Go. Stop. Go. Stop. This Keynesian central-planning has damaged the Fed’s credibility. It has weakened the dollar. Entrepreneurs and investors can’t possibly plan ahead when interest rates bob up and down like yo-yos.

I suspect Charlie Prosser was referring to all this when he talked about the Fed’s credibility this week. If so, he’s right. So let’s say good-bye to Fed tinkering once and for all, and say hello to permanent enhancements to the economy’s incentive structure. How about lowering tax rates on corporations? How about lowering the corporate capital-gains tax rate? Why not abolish the individual capital-gains tax? Or the dividend tax? Or the estate tax? Why not eliminate the multiple-taxation of savings and investment?

At some point, the entire corporate tax structure should be thrown out, along with all the murky K-Street tax-earmark loopholes that litter the IRS code. We need to broaden the tax base and lower marginal rates. This is the key to maximizing future economic growth on the supply side. Without strong tax-reform measures to expand the production of goods and services, further Fed money injections are only demand-side “solutions” that will surely inflate prices and depreciate the currency.

Back in the 1970s, policymakers in Washington were obsessed with increasing aggregate demand, but they forgot about aggregate supply. Today’s short-term-stimulus rebate package is a throwback to that era. It’s not economic stimulus; it’s political stimulus. Congressmen up for reelection are trying to “do something” in response to primary-season exit polls that say Americans are totally unhappy with the economy. But these rebates are budget busters. And how will Congress attempt to pay down $400 billion in budget deficits? Higher tax rates, of course. And then we’ll really be back in the 1970s.

Out on the campaign trail, Sen. Hillary Clinton has a Nixonian idea to freeze interest rates on sub-prime mortgages. Exactly wrong. Doing so would cause financial havoc at home and abroad. Perhaps Sen. McCain, who is now campaigning as an heir to Ronald Reagan, will argue for strong, pro-growth tax reform to expand economic growth and a steady monetary policy to protect the dollar and reinforce domestic price stability. One can only hope.

But if Bernanke can officially put the yo-yo interest-rate days behind us, we’re halfway there.

MONEY POLITIC$...We're going to have a Washington to Wall Street debate between Art Laffer, economist and president of Laffer Associates and former Clinton Labor Secretary & author of "Supercapitalism" Robert Reich.

THE STOCK MARKET...Our market panel will discuss and debate all the latest news and developments affecting investors.

THE FED & THE ECONOMY...We'll begin with a one-on-one interview with Larry Lindsey, president and CEO of the Lindsey Group and former chief economic adviser to President Bush. The market panel will join in with its perspective.

THE CREDIT MARKETS...On board to discuss will be Fair Isaac CEO, Dr. Mark Greene. Dr. Greene will be joined by Mr. Lindsey, CNBC's Charlie Gasparino, and Andrew Ross Sorkin from the New York Times.

MCCAIN ENTERS THE LIONS DEN...On to discuss Sen. McCain's visit to the CPAC conference today, Gov. Romney's stepping down, and other stock market politics issues will be the following guests:

“My favorite quote from Trotsky is, ‘You may not have an interest in history, but history has an interest in you.’ The same goes for terrorism. These [presidential] candidates - maybe the American public, because we’ve been safe for so long – do not have an interest in the terrorism issue. The terrorists have an interest in us. And I’m pretty sure it’s going to be an issue again, unfortunately, in the future.” –Jimmy Pethokoukis, senior writer with U.S. News & World Report on last night’s Kudlow & Company.

These remarks are spot-on. Yesterday’s front-page story in The New York Times ought to be a big wake-up call. Al Qaeda has not gone away. According to Senate testimony from national intelligence director Mike McConnell, Al Qaeda is gaining strength in Pakistan with plans to carry out attacks here in the U.S.

While I recognize that the economy has replaced terrorism as the number one issue in voters’ minds right now, we must never lose sight of this ongoing threat. We can’t afford to. The greatest threat facing this country is not subprime, marginal tax rates, stimulus packages, etc. It’s our safety.

Whoever wins in November is going to have to confront this issue. The bad guys haven’t gone away.

WHEN IS EUROPE GOING TO (FINALLY) CUT RATES?...Goldman Sachs International vice-chairman Bob Hormats will join the market panel with his take on where interest rates are headed across the pond.

KEEPING AMERICA SAFE: THE AL QAEDA THREAT...On to discuss news that Al Qaeda has shifted its operations to Pakistan are the following guests:

*Steve Emerson, NBC terrorism analyst and author of Jihad Incorporated: A Guide to Militant Islam in the US.*Ron Kessler, New York Times bestselling author & chief Washington correspondent for Newsmax.*Ken Timmerman,Executive Director of the Foundation for Democracy in Iran, and author of "Countdown to Crisis: the Coming Nuclear Showdown with Iran."

IS JOHN MCCAIN WALKING INTO A LIONS DEN AT CPAC?...On to discuss are John Fund from The Wall Street Journal's Opinion Journal.com and Human Events editor Jed Babbin.

Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.

It’s very curious that the stock market has plunged on either the day of, or the day after, the four or five recent primary election contests. While there may be no direct causality, one can’t help but wonder whether the investor class hasn’t been disappointed with the shape of this election battle.

Democrats are trashing rich people. They want to raise tax rates. Meanwhile, Republicans have been skirting around this issue. While some decent tax-cut plans are out there, there really has been no direct connection to investors. Remember, investors make up about 65 percent of the voting electorate. In recent national elections, nearly two out of every three voters owned stock.

Again, there might not be any causality between the market plunges and the primaries. But rest assured that a good number of people have been disappointed by the shape of this election battle. Nobody in either party has been reaching out to the investor class.

As far as last night’s primary results are concerned, one thing was made official: Mac is back. Sen. McCain is moving right along toward securing the GOP nomination. He is also developing some solid pro-growth tax reforms. This includes slashing the onerously high corporate tax rate and extending the Bush investor tax cuts on dividends and capital gains. This is good.

McCain may also be moving toward a broad-based, pro-growth tax-reform plan. He has surrounded himself with an all-star supply-side team that includes Jack Kemp, Phil Gramm, and Steve Forbes, along with senior McCain staffer Douglas Holtz-Eakin. So there may be some meat on the bones for investors after all.

Judging by the polls, Mac can win the grand prize this November. So higher taxes and a big-government surge are not inevitable. Investors take heart.

"And whatever else history may say about me when I'm gone, I hope it will record that I appealed to your best hopes, not your worst fears, to your confidence rather than your doubts. My dream is that you will travel the road ahead with liberty's lamp guiding your steps and opportunity's arm steadying your way. My fondest hope for each one of you — and especially for young people — is that you will love your country, not for her power or wealth, but for her selflessness and her idealism. May each of you have the heart to conceive, the understanding to direct, and the hand to execute works that will make the world a little better for your having been here. May all of you as Americans never forget your heroic origins, never fail to seek divine guidance, and never lose your natural, God-given optimism. And finally, my fellow Americans, may every dawn be a great new beginning for America and every evening bring us closer to that shining city upon a hill." —Ronald Reagan

About Me

Larry Kudlow

Lawrence Kudlow is CNBC’s Senior Contributor. For many years, he was the host of CNBC’s “The Kudlow Report”. He is also the host of The Larry Kudlow Show, which broadcasts on Saturdays from 10am to 1pm ET on WABC Radio and is syndicated nationally by Cumulus Media. He is also a nationally syndicated columnist and a former Reagan economic advisor. CNBC's The Kudlow Report also airs on Sirius (ch.129) and XM (ch.127) weeknights at 7pm ET.